Mexico labor laws: your guide to compliant hiring in Mexico

Are you planning to expand your business by hiring workers in Mexico?

If so, then you will need to learn the specifics of the country’s labor laws. There are many differences between Mexican labor laws and those of other countries.

This article will cover the recent changes made to Mexico’s labor laws. It will also provide information about cultural considerations, the average workday, labor unions, and payroll laws.

You will learn about the differences between employees and contractors in Mexico, along with how to successfully terminate employees.

Employers looking to hire in Mexico should take the time to familiarize themselves with the unique requirements of the labor laws.

Here’s everything you need to know to get started.

Recent changes in Mexican labor laws

Labor laws in Mexico have changed substantially over the last few years.

Some of these changes were the result of new rules defined by the United States-Mexico-Canada Agreement (USMCA).

This trade agreement replaced the North American Free Trade Agreement (NAFTA) for Mexico, Canada, and the United States in July 2020.

Before that, in 2019, Mexico enacted new rules to combat discrimination and unfair labor practices in the workplace. These rules require companies with employees in Mexico to create internal policies that help prevent issues of discrimination, intimidation, sexual harassment, and other problems, including the employment of children.

In 2021, Mexico tightened employment laws regarding outsourcing. Now employees must register their services with the Ministry of Labor. This measure aims to encourage employers to consider hiring employees over contractors.

In 2023, Mexico’s minimum wage increased by 20% to 207.44 pesos (USD 11.54) per day. The minimum wage in the North Border area was raised to 312.41 pesos (USD 17.38) per day.

Some of the changes in Mexican labor laws have made life easier for employers.

For example, companies used to be subject to regular inspections for compliance.

According to the new rules, many can now self-report through the Mexican government.

Self-reporting in this way is voluntary, but employers who self-report and are found to be in compliance receive certificates confirming their good standing.

Self-reporting inaccurate information can lead to additional inspections, fines, legal penalties, and other problems. As such, employers should not misuse its convenience.

Employers in Mexico must also be aware of the country’s various tax and income reporting requirements. For example, the Mexican government requires 3% of employees’ total salaries to be submitted monthly.

Cultural considerations in Mexico

As you establish your business in Mexico, you’ll want to consider some unique cultural factors that impact how people relate to their employers and coworkers.

For example, people in Mexico value establishing and maintaining relationships in the workplace. For instance, your employees might start the day by engaging in small talk for a few minutes.

As in many other countries, agreements between Mexican employers and employees should be formalized in writing. This type of business is often conducted in person rather than over the phone or through email. It is not uncommon for meetings to occur over a lengthy breakfast or lunch.

You should also be aware of differences in body language. Strong eye contact and close body positioning are considered a sign of respect in Mexico.

In addition, punctuality and meeting deadlines are loosely enforced.

Understanding these differences will go a long way in establishing a satisfactory work environment for your employees and contractors in Mexico.

The average workday and PTO in Mexico

The average workday in Mexico is divided into three shifts:

• The day shift occurs between 6 am and 8 pm

• The night shift occurs between 8 pm and 6 am.

• Swing shift workers have a 7.5-hour mixed shift divided between the day and night shifts.

Federal law allows for paid time off (PTO) for federal holidays and vacation days. A new regulation guarantees employees who have worked at least one year for their company 12 days off annually.

Unlimited PTO is not a common provision in Mexico.

Sick leave is offered if the employee has paid into their social security for at least four weeks. They will then receive 60% of their pay while on leave.

Employees can receive up to 52 weeks of sick leave if they provide a medically authenticated certificate with proof of illness or disability.

Mothers are given 12 weeks for maternity leave, while fathers receive five days.

Now that you know more about the average workday and leave policies in Mexico, let’s look at how labor unions will affect your business.

Labor unions in Mexico

Labor union laws in Mexico require unions to provide represented workers with direct input during labor negotiations.

Unions cannot agree on new collective bargaining agreements without the approval of the workers being represented. Unions in Mexico also place a greater emphasis on protecting workers with seniority.

To prevent the fracturing of worker representation, Mexican law generally prevents employers from entering into more than one agreement with more than one union. Should a company or workforce necessitate additional representation, government processes exist to determine which union, if any, will represent the workers.

All collective bargaining agreements in Mexico must be approved by the majority of workers before being accepted and filed with the appropriate agencies. Agreements do not go into effect until this process has been completed.

Legal strikes in Mexico require workers to submit proof that they are represented by an appropriate union.

Courts in Mexico act as mediators, and legal strikes cannot begin until the union and employer have attempted to reconcile their differences before a judicial entity.

Payroll laws in Mexico

Companies with Mexican employees must either establish their own local legal entities within the country, or work with an employer of record services provider (EOR), such as Remote who can employ in Mexico on behalf of the company..

Establishing an entity can take several months and cost several thousand dollars, so most employers find it more affordable to work with an EOR.

Remote’s EOR services handle payroll, benefits, taxes, and compliance for employers in Mexico for a low flat rate.

According to Mexican law, employers of workers in Mexico cannot pay workers in U.S. dollars or at non-approved banks. All contracts must be written in the local language, and workers must be paid in Mexican pesos through banks approved by the government.

Employees must also pay a progressive income tax, which is determined by their salary.

Paystubs or payslips in Mexico require approval by the Servicio de Administración Tributaria (SAT), the revenue service of the Mexican government. Once payslips are approved by the SAT, employers can provide workers with copies.

Employees vs contractors in Mexico

Contractors in Mexico operate much the same as contractors in other parts of the world.

Employers may not require specific work hours or oversee work performed by contractors outside the delivery of the requested services.

Labor reforms in Mexico have increased the penalties for misclassification of workers in the last 10 years. Exclusivity deals, including non-compete clauses, can indicate an employment relationship to Mexican authorities and entitle contractors to benefits as if they were employees.

Companies attempting to use contractors in Mexico without understanding the rules for doing so may run into permanent establishment risk, which can carry heavy penalties.

Outside of short-term contracts, employers should seek to employ workers as full-time employees through an employer of record or local legal entity whenever possible.

Mexico does not offer 'at-will employment', meaning it's not possible to terminate employees without notice at any time for any reason (read on for more specific information about terminations in Mexico below).

If you plan to hire employees in Mexico, you must provide written contracts outlining the explicit terms of employment.

These contracts must include the following:

• The employee’s identifying information (e.g., legal name and date of birth)

• Job description

• Employment length

• Job location

• Work schedule

• Salary and payment dates

• PTO

There are three types of contracts:

1. Definite contracts are for a specified time frame with an expiration date.

2. Indefinite contracts are the most popular contract type. An indefinite contract ends if both the employer and employee agree, the employee resigns, or the employee is fired for cause.

3. Seasonal contracts are defined by the season stated.

The type of contract you complete will affect your ability to terminate employees.

Terminating employees in Mexico

To terminate an employee in Mexico, the employer must first consider the nature of the employment contract.

Indefinite contracts, which cover most Mexican jobs, entitle workers to severance pay. Definite contracts are rarer and define a specific length of time or scope of work to be completed.

Employers do not have to pay severance outside of the agreed terms of compensation at the end of a definite contract.

Any employee who works for at least one month for an employer without a definite contract is assumed to be an indefinite employee.

Employees with even less time can also be considered workers on indefinite contracts in certain cases.

Companies should not depend on probationary periods for protection due to case law insufficiencies.

Workers terminated on indefinite contracts can leave companies in one of three ways:

• Voluntary resignation

• Termination with cause

• Termination without cause

Each provides severance benefits to workers, increasing in amount depending on the nature of the separation.

Although employers are not required to give advance notice for termination in Mexico, they must document the cause, as Mexico is not an at-will employment country.

Are you ready to navigate the labor laws in Mexico?

Labor laws in Mexico have changed substantially in recent years.

Employers who previously hired workers in Mexico may find that their old policies no longer apply. Those looking to hire their first workers in Mexico must abide by all applicable laws to remain compliant.

Understanding the relevant local labor laws is your first step toward expanding your business into Mexico.

Connecting with a partner you can trust is the second.

With Remote as your employer of record, companies of all sizes can confidently hire employees in Mexico.

Remote stays up-to-date on current Mexican labor, employment, and tax laws so that you don’t have to.

Remote also handles payroll, benefits, tax reporting, and legal compliance in Mexico so you can focus on growing your global business.

Find out more about how Remote makes employment in Mexico easy.

Read Remote's expert guide to hiring in Mexico

Use our expert hiring guide for information on local benefits, taxation, and compliance requirements to help you employ in Mexico with ease.

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